Gold Market Will Watch Equities, FOMC Meeting

The direction of equity markets and a meeting by the U.S. Federal Reserve will be watched by gold market participants next week to see if the yellow metal will finally break above $1,600 an ounce.
April gold futures fell short of that goal, but still ended firmer Friday, settling at $1,592.60 an ounce on the Comex division of the New York Mercantile Exchange, rising 0.996% on the week.
Most-active May silver fell on the day, settling at $28.948, down 0.335% on the week.

In the Kitco News Gold Survey, out of 33 participants, 25 responded this week. Of those 25 participants, 17 see prices up, while two see prices down, and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Some gold market watchers said given the metal has held above the $1,554 low from late February, the metal might be trying to build a base here which may strengthen it against attempts to push prices lower. While gold may be trying to build a base, it continues to be vexed in its attempt to break over $1,600 and close above that area. Part of that has to do with the strength in equities, which is drawing investors’ attention, traders said.

The equity markets will likely continue to influence gold, particularly as the Dow Jones Industrial Average notches up its record high – with 10 higher settlements in a row through Thursday. Inevitably the equity markets will pull back, but the question is, how will investors react? Several market analysts said it will take a hefty break in stock values to shake up investors enough to return to gold in a big way and its safe haven allure.

Still, some analyst said with gold holding so close to $1,600 and slowly creeping up to that area, next week could be the week that gold at least moves above there. 
“The market has held well on tests to the downside and certainly feels like (there) is solid support between $1,575 (and) $1,580. Given the current the risk-on environment and relentless push higher in the equity markets, gold has held well and the path of least resistance might well be to the upside,” said Steve Scacalossi, vice president and director, global precious metals, TD Securities.

While a move above $1,600 is possible, other analysts said gold just doesn’t have the firepower to build on the gains beyond that level and that the metal is still mostly range-bound.
“Gold appears to be stabilizing between $1,570/oz and $1,625/oz; a similar range to mid-year 2012. We expect that gold and silver could remain relatively moribund for the next couple of quarters,” said Deutsche Bank analysts.

Adam Hewison, president, INO.com, said although gold has been quiet, don’t take your eye off it.
"One lesson I learned a long time ago is you don't short quiet markets. With that thought in mind, I think gold is going to continue to build a base and gather strength to move higher later this year when inflation kicks in," he said.

Talk about inflation increased on Friday after the February consumer price index data came in higher than expected. The overall figure was up 0.7% in February, the highest since June 2009. The main figure was led by a surge in gasoline prices, up 9.1%. The core number, which strips out the volatile food and energy component, rose 0.2%.  Even with the jump in February data, so far the data over the past 12 months increased 2%, which is within the Federal Reserve’s inflation target.

The main planned news event for next week is the Fed’s March Federal Open Market Committee meeting, set for Wednesday. This meeting will feature a press conference from Chairman Ben Bernanke and market participants will look for more forward guidance on Fed policy, particularly after stronger-than-expected housing and jobs data.

“They should give more direction on the economy and QE3 and whether that will end sooner rather than later, and whether they are going to support the recovery in another way,” said Robin Bhar, metals analyst with Societe Generale.
The bank is not expecting any major new changes from the central bank, Bhar said.

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